So the concentration of stock ownership is a big reason for wealth inequality. How can policy help fight this trend?
One way is to encourage the middle class to put more of its money into the stock market and less into housing. Ending or capping the mortgage-interest tax deduction, as some are now proposing, would help encourage middle-class people to rent instead of own houses. Although losing this tax break would be a bit of a setback, spending less overall on housing would free up money for stock purchases. Making retirement savings plans opt-out instead of opt-in would nudge middle-class workers both to save more and to own more stock.
A more radical solution is for government to own stock directly, and distribute the proceeds to citizens. Japan’s central bank now does this through stock purchases as part of its program of quantitative easing, which was designed to stimulate the economy. A more permanent idea would be a U.S. sovereign wealth fund, as suggested by economist Miles Kimball. Such a fund would take minority equity stakes -- not just in the U.S., but in foreign stocks as well -- and distribute the proceeds as the government sees fit. The danger of programs like these is that they could distort corporate decisions or make industries less competitive. But if the government takes only a minority stake in each company, and doesn’t exercise voting rights, private investors will still hold the reins.
One thing is for sure -- if the U.S. and other countries want to stop wealth distribution from growing ever more unequal, they’ll have to find a way to more broadly distribute the upside offered by owning stock.
Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.